26 April 2018

1Office property gets lion’s share of private equity funds in March quarter

India’s office property segment retained its dominance in attracting private equity investments both in value and volume in the quarter ended March, recording inflows of $1.7 billion across ten transactions. Commercial assets accounted for more than 70% of total investments made by private equity players into Indian real estate

(Source: Economic Times, 16 March, 2018)

Research View

The sustained demand in commercial office segment and the anticipation of Real Estate Investment Trust (REIT) in India are the two major factors driving the rising investor appetite for commercial assets in recent times. Though the real estate sector went through a major chapter of transformation in 2017, regardless of all the macroeconomic disruptions, the commercial office market remained robust in 2017 with 42.8 million sq ft of pan-Indian leasing volume recorded over the year. In addition, the first quarter of 2018 has also kick-started at a positive note, with about 18% YoY increase in the gross office take-up in India. As per Colliers Research, the office space recorded more than 11.0 million sq ft (1.02 million sq m) of gross absorption across major Indian cities in Q1 2018. On the supply side, the office market segment is becoming more organized with pan-Indian developers being strategic in their developments plans and upgrading their office portfolios. About 90 million sq ft (0.8 million sq m) is under various stages of construction, which should push up total grade A office stock of India by 17-18% by 2020. Despite the concerns such as automation and artificial intelligence, having the potential to disrupt the Indian property market significantly, the commercial real estate market is likely to remain robust with increased investor activity over 2018. Consistent demand from technology companies, supportive policy initiatives such as Make in India, Startup India, thrust for logistics industry, and growing interests from various industry occupiers like manufacturing and coworking should upkeep activities in commercial market segment in medium-to-long term.

2. Mirae Assets readies USD 500 Million arsenal to invest in Indian real estate market

Mirae Asset Global Investments, a wholly-owned subsidiary of the Mirae Asset Financial Group, plans to invest $500 million in the commercial and residential market of India

(Source: ETRealty, 17 April, 2017)

Research View

Indian property investments have been witnessing a substantial interest from the institutional investors. More foreign institutional investors, including pension and sovereign funds, are showing interest in Indian real estate. The private investors are being encouraged further by the improved sovereign rating from Moody’s, ‘most competitive economy in South Asia’ tag from the World Economic Forum and better World Bank’s ‘Ease of doing business’ ranking. In the year 2017, the overall investment quantum stood at about USD 8.7 billion, which included mergers and acquisitions (M&A), private equity deals and debt funding. In Q1 2018, the real estate industry has already attracted cash inflow close to USD 1.7 billion. Recently, companies like the Virtuous group, backed by APG asset management, have also entered into an agreement to fund a premium retail mall in Delhi. The investment momentum will continue to soar high and expect investors focus to remain on commercial properties, while logistics and warehousing is expected to pick up, especially after the implementation of one tax system and infrastructure status to logistics segment.

3. Centre proposes relaxation of coastal regulation zone norms

The Centre has allowed India’s coasts to be made more accessible to tourism and industrial infrastructure and given individual States considerable leeway to decide how they should plan such development, according to a draft version of the proposed modification to India’s coastal regulation zone plan made public on the Environment Ministry website

(Source: The Hindu, 18 April, 2017)

Research View

India has around 7,000 km long shoreline, waiting to be unlocked for further development of sea-facing luxury residential development, hospitality, commercial and industrial asset classes. The proposal to dilute the 2011 Coastal Regulation Zone (CRZ) norm by the central government, will immensely benefit Tier I cities such as Mumbai and Chennai and other Tier II cities such as Kochi, Thiruvananthapuram, Vizag, Visakhapatnam, Goa, Puducherry and many others. For a city like Mumbai, where the key challenges include restricted land for development and high capital and rental values (capital values ranging between INR 35,000-50,000/sq ft for residential properties), this move would be a major boost to the real estate sector and revenue generating avenue for the state government. Areas such as Greater Mumbai will witness development across acres of land, which are locked under slums. Other areas to witness development are along the coast such as Vasai, Virar, Palghar and Mira Bhayandar. This step by the central government will ensure intense development in the tourism sector. However, the flip side of this proposal is safeguarding the sensitive ecology along with preventions from hazards caused by natural disasters such as tsunami and excessive rains. Internationally, in countries such as Hawaii, Singapore and Hong Kong, the coastline has been developed as tourism hubs. We perceive this step on a positive one, but recommend all the stakeholders to consciously consider their social responsibility in preserving the environment while developing projects.


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